No takers for Indian labour: Job creation hits a low

“Every year, 12 million enter the labour force. What is your plan for the country so that more people are employed?” This was the question shot at a bunch of industrialists by Mr Arvind Panagariya. The country has been witnessing extremely low levels of investment in labour intensive industries like food processing, electronic assembly, leather products, which are crucial in employment generation. The National Institute for Transforming India (NITI) Aayog chairman went all out on the industrialists by saying that the excuse of stringent labour laws for low investment does not entirely hold true.

State measures stepping it up

Gujarat, a state which came up with the much controversial amendments in their labour laws, has considerably eased norms and restrictions, making them more liberal than most of the other states. The amendments include a provision in the law to mediate for litigations, a law that allows the management to change the nature of employee’s job without serving prior information or notice. The new act seeks to give powers to the government to prohibit strikes in public utility services in the first instance for one year, while some other relaxations followed. In spite of this, Gujarat has seen visibly no development in labour-intensive sector investment over the past couple of years.

India has a good chance

Job creation and rising unemployment along with galloping population have created a vicious circle in India, the solution to which lies in generating enough employment to absorb the labour force. The economic survey 2016-17 tabled in Parliament this year pointed out that the focus should be towards labour-intensive sectors such as apparel, food processing, electronic assembly, and leather products. While 23.9 jobs are created per Rs.1 lakh of investment in the apparel sector, 7.1 jobs are created per Rs.1 lakh of investment in the leather and footwear industry. The survey also mentioned that the rising labour cost in China is leading to a situation where the country is gradually vacating its dominant position in these sectors and India, a labour abundant nation, has a lot to gain from this.

In the current scenario, smaller countries like Bangladesh and Vietnam are heavily investing in labour intensive industries, and for India to bank on this opportunity by competing with these nations, it would require easing restrictions on labour regulations, negotiating Free Trade Agreements with major partners such as the European Union and the United Kingdom and ensuring that the GST rationalises the current tax policy that can discriminate against dynamic sectors.

Cattle slaughter and unemployment

Moreover, the leather and footwear sectors face another specific challenge relating to the limited availability of cattle for slaughter. “It is estimated that cattle-based global exports dominate buffalo-based exports by a factor of 8-9. However, despite having a large cattle population, India’s share of global cattle population and exports of cattle hides is low and declining. This trend can be attributed to the limited availability of cattle for slaughter in India, thereby leading to loss of a potential comparative advantage due to under utilisation of the abundantly available natural resource,” said the survey.

Along with these issues, it might be the fact that investors do not see immediate returns from manufacturing or their conceived notion about India’s labour sector which has been stagnant for many years now, has no solution in the picture. The irony of the situation is that labour is India’s most abundant resource. While the states are trying to up its potential by encouraging progressive laws, investors are now playing the spoilt sport.